A record year for Australian Venture Capital

2018 marks another record year for Venture Capital investment in Australia, fuelling the growth of exciting tech startups with the ecosystem going from strength to strength.

At Innovation Bay’s ‘Year in Venture Capital event’, hosted on the stunning roof of Macquarie Bank, some of the industry’s key people gathered to reflect on another year of growth.

Daniel Petre—Airtree Ventures, Niki Scevak—Blackbird Ventures, Tony Holt —Square Peg Capital and Katherine McConnell —Brighte took to the stage to discuss 2018 with Ian Gardiner from Innovation Bay to discuss the successes, failures and lessons learned in 2018, and what the future holds for the Australian ecosystem in 2019.

With Australian businesses raising $3.5bn AUD in funding during the 2017–18 financial year, the country’s highest ever figure mirrored the global trend of increasing investment into early-stage businesses, breaking previous records for capital investment. It is also interesting to note that the number of investments decreased slightly, with more money being spread across fewer deals.

This market shift was attributed to the “easy days of SaaS” being over, with a move towards investment into higher quality ‘deep tech’ businesses, with AI, health-tech, agri-tech and food-tech attracting investor attention. It seems the quality of startups is increasing, based on deeper expertise and greater experience.

That being said, 2018 was another year that saw fintech rule supreme in Australia, receiving 47% of investment, with a continued trend towards automating significant parts of the financial system.

Niki from Blackbird highlighted the dangers of following “trends”. Early stage investing is about meeting a founder creating a category before it even has a name. Take Airbnb for example, there was no such thing as a “sharing economy” before they pitched their wild idea. Now with advances in AI, the opportunity to now reimagine the potential of possibility and disrupt every industry is extraordinary.

Tony Holt noted that we are “moving from the Year of [series] As, to the Bs and the Cs”. Now progressing to later and larger investment deals, the lack of deep data in the ecosystem to enable effective decision making is limited. Largely relying on self-reported surveys, Australia could largely benefit from an outbound deep data collection, similar to Startup Nation in Israel, to better inform how we can better prepare for the continued growth of this ecosystem.

Another interesting shift in VC is the increased moves towards transparency and providing more value to founders than just ‘money and cheerleading’. VC funds are looking to standardise terms across the market, not looking to hide anything from the founders they’re investing in, in order to share what they believe in and attract further businesses in future.

One of the most heartening changes though, is the wish to provide genuine support to founders besides just investment. With the acknowledgement that being a founder can be a challenging and often lonely experience, funds are providing additional support on everything from recruitment to mental health counselling to ensure their portfolio companies thrive.

A real highlight of 2018 was the global attention Australian startups are now garnering. Australian VC’s are only providing 15% of the capital to startups, with the remaining 85% coming from overseas as the world wakes up to the Australian ecosystem, with Sequoia China being the leading investor into Australia. It seems the conversation needs to switch from the internal ‘Sydney vs Melbourne’ debate and pivot to what Australia’s place is on the global stage.

With the industry starting to mature in Australia, there is naturally a look forward to when these early stage businesses will start to provide return to investors. With a trend of companies remaining private for longer than usual, the industry is drawing towards the crunch time of liquidity events being necessary to ensure value to investors, allowing VC funding to continue to grow.

As we continue to evolve from an immature technology hub to a rich, varied and thriving ecosystem, venture capital investors, industry leaders and members of the community alike, all have a role to play in positioning Australia as a more significant player in the global technology sector. 2019 — big things are happening!